The global value of travel retail itself is set to reach $85 billion by 2020. With the lure of duty-free shopping and over a billion people traveling worldwide, international brands such as L’Oréal have aptly nicknamed this growing economy ‘the sixth continent’.
The world’s first duty-free store opened in 1947 at Shannon Airport, Ireland, by Brendan O’Regan. Designed with the consumer in mind, the store was aimed at passengers traveling between Europe and America whose flights stopped for refueling.
Duty-free stores, exempt from paying national tax and duties are designed to sell products to travelers who will take those goods out of the country. Naturally, the idea was a success and spawned a number outlets in Europe, North America and Hong Kong in the 1960’s.
The most notable during that period was Duty Free Shoppers (DFS) which is now co-owned by LVMH Moët Hennessy Louis Vuitton and original DFS co-founder, Robert Miller.
Travel retail has come a long way since its humble beginnings and is now an important part of the retail sector offering electronics, luxury goods, sundries and souvenirs in international airports and cruise ships.
International airports are now considered retail destinations and retail design has evolved too – luxury experiences dominate as opposed to the modest duty-free experiences of the past.
Opportunities for engagement
The number of Chinese visitors to the UK in 2015 increased by 45% and spending increased by 18%. These impressive numbers have led retailers to use strategies unique to the travel retail environment to engage with international travelers.
Heathrow Airport’s anchor stores use airport flight data in order to better prepare themselves for international travelers. By anticipating the nationality of the customers that pass their stores, brands are able to adjust digital displays and marketing collateral to match the language of the customers passing by.
Known as ‘the golden hour’ – the time between travelers passing security and boarding their flights, retailers are increasingly using this specific window of opportunity to engage with new and existing customers in order to deliver a unique brand experience.
Both Shanghai and Macau airports boast large state-of-the-art digital LED advertising screens (up to 37m² is some cases) or ‘digital branding walls’. These digital displays are strategically placed to catch the attention of all passengers within the terminal and retailers can frequently update content to increase brand exposure.
Retailers are able to build brand awareness with customers from new and emerging markets in a unique way compared to traditional retail spaces or localized eCommerce platforms.
These highly curated spaces are developed not only to increase sales but also to offer customers a unique retail experience – personal shopping, and multilingual staff are just a few of the steps retailers are taking in order to engage with their customers and increase sales.
The luxury retail experience
It seems that shopping is integral to the travel experience with customers from emerging markets including China and Russia spending more on luxury goods than incoming tourists to their countries.
In 2015 Chinese spending during outbound travel grew by 53% and in South Korea, duty-free sales grew by 33% to $10.5bn in 2016.
Luxury brands now consider travel retail an important prong in their business strategy and have made significant investments to ensure they are carefully positioned to take advantage of the spending power of international travelers.
Brands such as Louis Vuitton, Gucci, Chanel, Cartier and Prada can be found in the world’s top-grossing international airports in the cities of Seoul, Dubai, Singapore, London and Hong Kong.
Hong Kong-based DFS is one of the largest travel retailers in the world and has stores in over 17 major airports and 18 downtown galleria stores. As a subsidiary of LVMH since 1996, DFS is known as ‘the traveler’s luxury department store’ offering a host high-end brands including Bulgari, Dior, Givenchy, Fendi and Marc Jacobs.
DFS have diversified its portfolio of brands to also include, beauty products, accessories, wine, spirits and even a tier based loyalty program.
Home to the Emirates Airline, Dubai International Airport is one of the world’s busiest airports. Its third terminal has a host of fashion brands to cater to the luxury shopper and even boasts a traditional Gold Souk. It regularly hosts post-Ramadan luxury raffles featuring sports cars as some if its top prizes.
Consumer goods aren’t the sole contributors to travel retail revenue. Premium and luxury services are also provided by airports in order to help passengers pass the time before boarding their departing flight.
Hamad International Airport, Qatar offers travelers to take time out and relax before their flight using its gym facilities – including a 25-meter swimming pool. For $35, you can also use the airport’s purpose-built hydrotherapy tubs.
Singapore Changi Airport, on the other hand, offers a more horticultural airport experience, boasting a sunflower and water lily garden as well as a cinema and rooftop pool.
Beauty in the driving seat
Beauty products are the top-selling items in travel retail and counted for 30% of sales in 2014.
These products can essentially be marketed as on-the-go items due to their size and brands have been able to align their everyday products with the overall travel experience.
Creating travel categories is now best practice for many beauty retailers. These sometimes modest yet valuable categories focus on travel-sized products or ‘minis’ where customers can purchase smaller versions of full-size products. It’s also a perfect opportunity for beauty brands to promote exclusivity to their travel customers by marketing specially merchandised travel sets to be sold exclusively in airport stores.
In partnership with DFS, Sephora opened a pop-up store in Dubai Airport between August and October 2015. The LVMH owned French cosmetics brand offered exclusive products available only to travelers flying from the airport.
Sephora has also taken the term ‘on-the-go’ quite literally and introduced branded vending machines with up to 50 products in 7 US airports.
Duty-free retail spaces offer opportunities for companies with large brand portfolios to diversify and market their brands to new audiences. Their unique retail positioning allows them to promote and test brands and products that may not yet be available in local stores.
In 2013, L’Oréal created its own travel retail division to oversee its entire brand portfolio. A ‘universalization strategy’ was put into place to meet the beauty needs of travel consumers – male and female alike.
What followed was the strategic expansion of concessions and standalone stores of L’Oréal brands including relaunching Yves Saint Laurent cosmetics in China and recently launching its Giorgio Armani cosmetics range in 15 key travel retail locations in North and South America.
It’s clear that the key to success in the travel retail industry is analyzing customer behavior and marketing the right products with an unrivaled customer experience.
Increased connectivity in airports could see mobile and smartphone technology lead the way for growth.
Location data can be used by brands to serve more targeted ads to travelers through Google, Facebook, and Instagram and touch screen devices with enhanced content can stimulate the in-store experience.
More people are traveling each year (more than 9 billion passengers by 2025) and it’s imperative that retailers positioned in international airports continue to adapt in order to deliver exceptional experiences and relevant products for the traveling customer.